Schaeffler : Presentation Adapting our structures to a prolonged market recovery – Schaeffler AG

Adapting our structures to a prolonged market recovery

CEO & CFO Conference Call

Sep 10, 2020 - 11.30 CEST

Herzogenaurach

1 Overview

Introducing additional structural measures - Current trading improved, still market headwinds persist

Schaeffler key financial news-flow in 2020

Current trading July and August 2020

Mar 10th

Mar 24th

May 6th

Aug 4th

FY 2019: First results of voluntary severance scheme announced in November 2019

Capital Markets Update: Fast implementation of Covid related short-term measures

Q1 2020: Voluntary severance scheme expanded, reduction of balance sheet risks

H1 2020: Temporary countermeasures intensified, need for further structural measures highlighted

1	Sequential improvement at Group level continued in July and
August vs. H1 2020
2	Automotive OEM August stable vs. July, Automotive Aftermarket
sequentially improving in August vs. July
3	Industrial Division sales still impacted by overall market slowdown
4	Capacity utilization across regions further stabilized in August,
Europe lagging behind

Aug 20th EGM announced to be held on Sep 15th, 2020

Sep 10th	Announcement of additional structural measures

5	Temporary measures - i.a. short time work - and Capex discipline
continued in the Summer months, liquidity situation robust

Sep 10, 2020

2

1 Overview

Transformation journey continues - Additional structural measures will add to previous programs

Schaeffler Headcount

as per month end

92,198	92,478	- 9%
vs. Dec 2018

		90,492
			87,748
				84,223
Jun 2018	Dec 2018	Jun 2019	Dec 2019	Jun 2020

Decline vs.
-1,986		-4,730		-8,255
Dec 2018

Efficiency measures implemented in recent quarters

• BCT dissolution was a key milestone of our stringent divisionalisation
• Divisional improvement programs RACE, GRIP and FIT are holistic programs including top line, efficiency and investment prioritization levers, implementation started in 2019
• The above programs resulted in selected site divestments and a voluntary severance scheme with 1,900 HCO reduction
• Starting in December 2019, broad-based cost flexing measures were implemented, both at Divisional and Corporate level. Due to Covid, these were further intensified in recent months:
• • Reduction of travel, service and logistic costs
  • Reduction of marketing and consulting costs
  • Project cancelations / adjustments (incl. R&D)
  • Cost saving measures at plant level (e.g. Purchasing savings)

The financial impact of these was already visible in the H1 2020 earnings

BCT: Bearing and Component Technologies

Sep 10, 2020

3

2 Adapting our structures

Prolonged market recovery phase requires adaptation of our structures - Footprint, Capacities, Overheads

LVP: prolonged recovery phase expected

(LVP1 in mn vehicles)

100	2019 level
80	89				88	91	93
		85
			79
60		70
40
20
0
	FY 2019	FY 2020E	FY 2021E	FY 2022E	FY 2023E	FY 2024E	FY 2025E
Pre Covid		88	90	93	96	98	100
estimate

1 Light vehicle production based on IHS Markit as of January (pre Covid) / August 2020

Rationale and Assumptions

• LVP is not expected to reach 2019 level until 2024
• Relevant Industrial Production expected to return to 2019 output level earliest by 2022

Measures announced go in two main directions:

1. Footprint consolidation and reduction of capacity in Europe

2. Overhead reduction in Corporate and Divisions

Scope

• Europe with focus mainly on Germany
• About 4,400 headcount net reduction in Europe mainly in Germany, predominantly completed by end of 2022
• Around 14% of German workforce

Sep 10, 2020

4

2 Adapting our structures

1) Footprint consolidation and reduction of capacity in Europe - Increase competitiveness

	Scope		Improve competitiveness		Strengthen 5 key competence centers
	a.	Consolidating our footprint - Address our		− Automotive OEM: Strengthen e-Mobility
		fragmented footprint and increase our		competence center in Bühl, focus on active
		localization rate - 14 sites affected, thereof		portfolio management in terms of product
		12 in Germany		strategies and footprint
	b.	Reducing capacity - Right-size our internal		− Aftermarket: consolidate smaller offices
		tool manufacturing and special machinery		into headquarter in Langen
		units and adjust capacity in plants		− Industrial: consolidate 4 German plants
	c.	Improving efficiency in plants - Adapt the		into one, expand investments in strategic
		ratio of direct to indirect employees in		growth areas into the headquarters in
		remaining factories		Schweinfurt

14~3,200

sites affected

net HCO reduction

Sep 10, 2020

5

2 Adapting our structures

2) Overhead reduction in Corporate and Divisions - Reduce complexity

Scope	Reduce complexity
− All Divisions and Functions	− Delayer the organization
− Managerial and non-managerial positions	− Further streamline our processes
− Mainly in Germany	− Recalibrate roles, responsibilities and tasks
	in our matrix structure

− Enable faster decision-making and execution

Divisions and all Corporate functions

Automotive Automotive Industrial

Technologies Aftermarket

CEO Functions

Finance & IT

Operations

HR

R&D

~1,200

net HCO reduction

Sep 10, 2020

6

3 Financial impact

Financial impact

Savings: EUR 250 - 300 mn annual benefits of which 90% will be realized already in 2023, split roughly evenly between Automotive OEM and Industrial, small impact in Aftermarket

Transformation cost: Around EUR 700 mn cost mainly in H2 2020, majority of cash-out in 2021 and 2022 - around 90% personnel-related including severance and 10% related to other costs including transfer

Fiscal year 2020 impact: provision to be booked in H2, no impact on EBIT before special items

Sep 10, 2020

7

4 Conclusion

Self-help structural measures - Reduce cost and increase competitiveness

1

2

3

Coronavirus-related uncertainty remains high - We adapt our structures to a

prolonged market recovery in a sustainable way

Appropriate temporary cost flexing benefitted the Group in H1 - short-term

levers will remain in focus beyond 2020

Accelerate structural change and transformation - Optimize our European footprint,

increase localization and adapt overhead in Divisions and Corporate functions

Sustainably reduce cost and increase competitiveness for the long term

1. Increase competitiveness - Create flexibility to invest in future business and technologies, continue to focus resources on employee reskilling
2. Liquidity is robust, our Capex discipline continues - We will continue to shape our balanced portfolio as Automotive and Industrial supplier

Sep 10, 2020

8

4 Conclusion

Financial calendar 2020/2021 - Capital Markets Day on November 18th 2020

Sep 10th		Today's presentation
		9M 2020 Earnings Release
Nov 10th
Nov 18th		Capital Markets Day (virtual event)

Mar 4th

FY 2020 Earnings Release

Sep 10, 2020

9

Disclaimer

This presentation contains forward-looking statements. The words "anticipate", "assume", "believe", "estimate", "expect", "intend", "may", "plan", "project", "should" and similar expressions are used to identify forward-looking statements. Forward-looking statements are statements that are not historical facts; they include statements about Schaeffler Group's beliefs and expectations and the assumptions underlying them. These statements are based on plans,

estimates and projections as they are currently available to the management of Schaeffler AG. Forward-looking statements therefore speak only as of the date they are made, and Schaeffler Group undertakes no obligation to update any of them in light of new information or future events.

By their very nature, forward-looking statements involve risks and uncertainties. These statements are based on Schaeffler AG management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Actual results may differ from those set forth in the forward-looking statements as a result of various factors (including, but not limited to, future global economic conditions, changed market conditions affecting the automotive industry, intense competition in the markets in which we operate and costs of compliance with applicable laws, regulations and standards, diverse political, legal, economic and other conditions affecting our markets, and other factors beyond our control).

This presentation is intended to provide a general overview of Schaeffler Group's business and does not purport to deal with all aspects and details regarding Schaeffler Group. Accordingly, neither Schaeffler Group nor any of its directors, officers, employees or advisers nor any other person makes

any representation or warranty, express or implied, as to, and accordingly no reliance should be placed on, the accuracy or completeness of the information contained in the presentation or of the views given or implied. Neither Schaeffler Group nor any of its directors, officers, employees or advisors nor

any other person shall have any liability whatsoever for any errors or omissions or any loss howsoever arising, directly or indirectly, from any use of this information or its contents or otherwise arising in connection therewith.

The material contained in this presentation reflects current legislation and the business and financial affairs of Schaeffler Group which are subject to change.

Sep 10, 2020

10

IR Contact

Investor Relations

Phone: + 49 9132 82 4440

Email: [e-mail]

Web: www.schaeffler.com/ir